Financial experts in the country have disagreed with Global rating agency, Fitch, that most Nigerian banks are undercapitalized following the persistent macroeconomic and currency challenges that characterized their operations since 2015
In its verdict announced last week, Fitch had said that while many of the banks failed to provide fully for bad loans, their earnings, especially tier-2 banks, were not strong enough to accommodate such full provision without going down below regulatory requirement for capital adequacy.
Fitch stated: “The latest round of results announced by Nigerian banks highlights capital weakness in the sector, with some mid-sized and small banks particularly vulnerable to deteriorating asset quality.
But reacting to the claim of under-provision for bad loans, a financial analyst and head of research at FSDH Merchant Bank Limited, Mr Ayodele Akinwunmi said Nigerian banks have been compliant with the extant regulatory requirements on provision for bad loans.
He stated: “I think Nigerian banks make provision in line with the relevant regulations and the Central Bank of Nigeria, CBN, Prudential Guidelines. So it may not be appropriate to say that they underprovided.”
Also Managing Director of APT Securities & Funds Limited, a Lagos based investment house, echoed the views of Akinwunmi.
He stated: “I don’t believe in the view of Fitch, since our regulators such as NDIC (Nigerian Deposit Insurance Corporation) and CBN received banks’ reports and review their returns, particularly the NDIC that ensures that the depositors’ funds are protected.
“Probably Fitch is not aware of the restructuring that the CBN permitted banks to restructure with their clients. There were some Oil and Gas loans that CBN allowed for restructuring as in the case of Oando exposure to the banks and similarly to Etisalat which CBN discussed with the lenders.”
In his own comments on the Fitch Ratings verdict, Managing Director of Lambert Trust Limited, another Lagos based investment house, stated: “In providing for Non-Performing Loans, NPLs Nigerian banks followed the CBN’s prudential guidelines So, I don’t believe they are under provided because the apex bank watches their financial reports.”
However, Mr Sewa Wusu, Head of Research and Investment Advisory at SCM Capital Limited, an arm of Sterling Bank Plc, took side with Fitch Ratings.
He stated: “I absolutely agree with the conclusion of Fitch Ratings. Before now most banks had actually taken huge provisions which have affected their profitability level and by extension the Capital Adequacy Ratio.